Gas Malaysia & PetGas

GAS Malaysia/PetGas: It is on track to higher profitability, after having been affected by increased gains tariffs since June 2011.

Gas Malaysia’s 10 year gas supply agreements with Petronas Bhd will be a major catalyst for the profit growth. It is fully contracted with Petronas to receive 40 million mmscfd in 2013. Another 30 mmscfd and 40 mmscfd will be provided in 2014 and 2015 respectively.

Its bottom line was significantly affected by a rm3 upward revision in gas tariffs, lifting its buying price for natural gas from rm11.05 to rm14.05 per million Mmbtu. Consequently its selling price rose from rm15 to rm16.07 per MMBtu.

The tariff revision was made in accordance with the government’s plan to reduce gas subsidies over the long term.

Gas Malaysia expects to receive additional gas supply from the Melaka Regasification Terminal (RGT), which had delayed the start of operations due to technical issues.

Petronas Gas Bhd, which owns a 14.8% stake in Gas Malaysia, is the operator of the LNG processing facility in Melaka.

About Gas Malaysia .....

It boasts a monopoly of natural gas supply to Peninsular Malaysia’s small and medium users. It is tapping into additional gas supply from new regasficaition terminals including the secured 29% increased in gas supply from Petronas beginning in 2013.

 

More RGT projects in Johor and Terengganu, along with clarity on Malaysia ’s LNG pricing mechanism will catalyst the stock.

 

Gas Malaysia has the highest barrier to entry, being the sole holder of a 20 year license to distribute gas to customers consuming up to two mmscfd.

 

It operates downstream of Petronas Gas Bhd which serves power generation companies and Petronas chemicals bhd. Another barrier to entry is the heavy capex of about rm1 billion.

 

Its growth prospects lie in volume growth. It has secured 29% more gas from Petronas on a stepped up basis, starting FY2013 after LNG imports commence in Sept 2012.